Your credit score should be very important to you because those three numbers will dictate your car insurance rate, whether you will be approved for a mortgage, if you will be accepted without a down payment for an apartment and even if you will be hired on some jobs. Your credit score can be pulled for just about anything these days. That is why it should be extremely important to you. If you have bad credit than chances are you have experienced being denied credit and that’s doesn’t feel nice.
Your score is determined by a formula that weighs how you pay your bills, how many open accounts and delinquent accounts you may have, how old these accounts are and how many inquiries for new accounts you have on your credit report. Your creditors report to one or more credit agencies (Equifax, Experian or Trans Union) each month with this information. If you are late with making payments this is reported as well as if you haven’t made your payment. This formula, usually the FICO method, determines based on your pattern what you score will be. It will range from 350-850, with the higher number meaning you are a better risk to potential creditors. An average and good score is 750 or more.
Improving your Credit Score
It is never too late to want to improve your credit score. However, it will take time. It will not happen within a few weeks—several months is more realistic. The same way that it took time to damage your credit score, it will take time to improve it. So, beware of those companies that claim miracles. Although there are legitimate companies that can help you with improving your credit history, the majesty will need you to do it. With that said, you can do it yourself. Be prepared to change your spending habits and how you pay your bills and you will see a significant improvement in your credit score within 9-12 months.
- Request a copy of your credit report from Annualcreditreport.com. There, you can get a free copy from each credit agency. It is federal law that allows a free copy of your credit report each year. It is important to know what exactly is on your credit report before you can start to improve your credit score.
- Check for errors on all three reports. There is a good chance that you will find differences between each report. If you do find an error, circle it and send a copy with your letter of dispute to the respective credit agency (TransUnion, Equifax, and Experian). They have 30 days to investigate your dispute (at which time they contact the creditor with the disputed information) or it has to be removed. If however, the creditor responds with proof that the information if correct it remains on your report. However, you can also request that an explanation be placed on file too explaining why you feel it is an error. This is provided to potential lenders.
- After the errors are disputed and cleared up, it is time to work the delinquent accounts. Take a deep breath and dig in, all delinquent accounts need to be addressed—even if that means that you call and set up a payment arrangement that is agreeable to both parties. The most important thing is to make contact so that you can get these account satisfied and current as soon as possible. Don’t agree to something you know you cannot keep. Be honest and do what is in your financial power to do.
- Set a budget and still to it. This might be the most challenging step because there will be times (many times) that you will want to make a purchase that you can’t afford. Remind yourself of your goal. These impulse-shopping habits must be erased. You will feel much better after you rebuild your credit score.
- Pay your bills on time every month. This cannot be stressed enough. This counts as 35% of your credit score.
To help you on your quest to improve your credit score you might find “Building a Better Credit Report,” put out by the Federal Trade Commission, full of helpful information. This report outlines your rights as a consumer and the steps needed to take to get your score back on track. There, you will also find a sample of a dispute letter.